The new era of expected credit loss provisioning

Benjamin Cohen and Gerald A. Edwards, Jr.

BIS Quarterly Review, 2017

Abstract: Following the Great Financial Crisis, accounting standard setters have required banks and other companies to provision against loans based on expected credit losses. While the rules adopted by the two main standard-setting bodies differ, banks must in both cases provision for expected credit losses from the time a loan is originated, rather than awaiting "trigger events" signalling imminent losses. In the short term, provisions may rise but the impact on regulatory capital is expected to be limited. However, the new rules are likely to alter the behaviour of banks in credit downturns, potentially dampening procyclicality. Banks, supervisors and market participants must prepare for their respective roles in implementing the new approach and assessing its impact.

JEL-codes: G21 G28 M40 M48 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (26)

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